Commission lowers economic forecast

France, Spain and the Netherlands expected to be given more time to reach deficit targets.

The European Commission today sounded an alert over the French economy and warned that several eurozone member states were expected to miss deficit-reduction targets that had been agreed with the European Union.

Presenting the Commission’s spring economic forecasts, Olli Rehn, the European commissioner for economic and monetary affairs and the euro, was more pessimistic about the overall eurozone economy than he was when he issued the previous forecasts, in February.

The eurozone’s gross domestic product (GDP) is now predicted to shrink by 0.4%. The previous forecast was a 0.3% contraction.

Rehn said that three of the eurozone’s largest economies, France, Spain and the Netherlands, were expected to miss their targets of getting their budget deficits below 3% of GDP.

However, in another sign that the Commission is easing its austerity-led policy, Rehn said that he was prepared to give these countries an additional one or two years to meet their targets. France’s government had only asked for an extra year but Rehn said that it could be given two.

“It may be reasonable to extend the deadline by two years and to correct the excessive deficit by 2015 at the latest,” Rehn said, adding that France needed to implement structural economic reforms swiftly in order to restore growth and competitiveness and that the government needed to specify “further actions to meet the objectives in fiscal policy”.

He said that the Commission was more pessimistic about France’s economy than was the French government. He said the French economy would shrink by 0.1% this year. A previous forecast was for 0.1% growth.

Rehn also had warnings for Spain. “With the view of the worse economic outlook and thanks to the credible medium-term fiscal strategy, we have advised the Spanish government to extend the timeline to correct the excessive deficit by two years, from 2014 to 2016,” he said.

Recommendations from the Commission over the time given to countries to get to 3%-of-GDP deficits have to be approved by EU member states before the summer. The Commission is expected to make the recommendations official on 29 May.